Posted on 10/13/2008 5:37:25 PM PDT by Brown Deer
This past Friday, the DJIA closed at 8,451.19 down 5,713.54 points from it's all time high of 14,164.53, which we saw over one year ago on October 8, 2007. The DJIA had dropped over 40 percent! Today we saw the largest DJIA one-day point gain in history. It was 936.42 points or 11.08% - the fifth largest percentage gain.
On October 20, 1987, the DJIA had bottomed out at 1,841.01, down 881.41 points from it's previous high of 2,722.42 which was achieved on August 25, 1987. This was a 32.38% drop from the market high of only two months earlier. The following day the market climbed 10.15% for a gain of 186.84 points. Two years later on August 24, 1989 the DJIA finally passed it's previous high and closed at 2,734.64. Ten years later on October 21, 1997, the DJIA closed at 8,060.44, for a net gain of 6,219.43 points or a percentage of 337.82%.
Let's now take a look at 1929. On September 4, 1929 the DJIA closed at 379.61. Less than two months later on October 29, 1929, it was at 230.07 down 39.39% or 149.54 points. The following day, the DJIA climbed 12.34% - this looks much more like what occurred today, than what happened in 1987.
Two weeks later on November 13, 1929 the market closed at 198.69. It was now down 47.66% from it's previous high! But, again on the following day it climbed back up another 9.36% giving us more hope. But alas, we did not see the market low of 41.22 until July 8, 1932. This was a total drop of 89.14%. Our market did not recover and see that previous high of 379.61 until November 17, 1954 - more than 25 years later.
Could we be looking at a market low of 1538 sometime over the next three years? When will we see a recovery back to 14,000? Will it in the next two years or are we looking forward to 2033 - but can that even happen when they are talking about Social Security going bankrupt long before that?
Personally, I see everything going back to normal. Obama has the White House and Wall Street has their Socialist, taxpayer funded bailout. All is good in Mudville.
The markets had much more slide before and after the period they were regulated by FDR era legislation. The market today is much closer to pre-Depression than it is the market of ‘87.
ping
Agree.
I wouldnt jump back in yet
If so, then we are looking to a further drop of over 80% or about 7500 points.
Hoover absolutely intervened.
Good job bargain hunting!
As for medical stocks, I’m not certain that even a president McCain is going to hold back federal meddling. It would take a rock ribbed conservative to halt it. McCain is in awe of the DC intelligencia.
I am into historical stuff (see my poll threads), and these wild movements are of grave concern to me, for the reasons you stated.
There were a number of vicious bear rallies between 1929 and 1932.
Let’s just hope this bear rally lasts until November 4th.
Got to remember too that FDR slowed the markets down, that’s why it took so long to regain it’s pre-Depression high. Those rules don’t apply today.
Give Hank a couple more weeks and he’ll get us into a slam dunk depression. I have faith in that boy!
Seen the Nikkei this evening..? Wow.
Up another 2000 points from there, and the election is in McCain's back pocket.
However, the problems are DEEP and ENDEMIC, so folks it could also go SOUTH at any moment. Dont get your hopes up too high...
That looks just like this morning’s chart here in the US...
No kidding. Actually I think what will bring us down is our own pisspoor leadership, not the actual mortgage problem.
I don't see real promising plans from McCain but Obama's plans are an anchor tied to those lifelines.
I keep looking at that chart and wonder if we should be down at around the 900-1000 mark like that 20-year period from about 1964 to 1984.
And didn’t our national debt start taking off in about 1979? How much does that have to do with a (false) increase in the DOW?
Hoover raised taxes, which was conventional wisdom at the time, but we know now to be absolutely the wrong thing to have done.
Friedman’s Monetary History of the United States from 1867 to 1960 is an excellent read of what happened from the Civil War up to the Great Society years. I think it’s going to be my winter reading this year.
I just ordered that myself.
“
Friedman’s Monetary History of the United States from 1867 to 1960
is an excellent read of what happened from the Civil War up to the
Great Society years. I think it’s going to be my winter reading this year.
“
Thanks for the info on “What Hoover did do”.
And thanks for the tip on the Friedman’s book. If time permits,
it will probably be a winter-spring read for me.
I’m just a novice on finance/investing, but I maybe can return the
favor...with a good read on the history of taxation.
Full of all sorts of interesting tales of how “taxes” have worked out
in many places and times.
For Good and Evil:
The Impact of Taxes on the Course of Civilization
by Charles Adams
http://www.amazon.com/Good-Evil-Second-Impact-Civilization/dp/1568332351/ref=sr_1_1?ie=UTF8&s=books&qid=1223959522&sr=1-1
My other money book is The Theory of Money and Credit by Ludwig von Mises. Friedman and Von Mises are pretty much my bible when it comes to money theory.
FDR definitely intervened worse than Hoover did but Hoover was the one who set the precedent for all of FDR’s later work. A lot of the time he wouldn’t actually go to Congress and ask for a law, but he would gather up a bunch of businessmen and ask them to keep prices and wages artificially high. They often listened to him (to the detriment of the country), setting up a pseudo corporatist system. He did however pass and encourage things like the Smoot-Hawley tariff which raised the cost of foreign goods and foreign countries in response did the same to our goods (more inflated prices). He also kept taxes really high. In his memoirs, he recalls rejecting his Treasury Secretary’s advice about laissez faire capitalism i.e. letting the economy work itself out.
He also passed and encouraged some programs that looked eerily similar to FDR’s pulic works programs. It is documented that FDR stole a lot of ideas from Hoover’s administration... which is ironic because FDR accused Hoover of intervening too much and of being a socialist.
Conventional wisdom on this subject is dead wrong and blatantly so. I don’t know how historians manage to portray Hoover like they do, but even Wikipedia has a good explanation of Hoover’s policies. I’m sure if you just google “Hoover-Depression” you’ll find some good stuff.
Roosevelt was worse, but when it comes to the free market, Hoover was no saint. Both prolonged the Depression which was not a “failure” of capitalism but a market correction due to the credit inflation of the 20’s
Murray Rothbard’s “Great Depression” is an excellent book on the subject. The more I learn about Friedman the less I like him.
I was recently in a government indoctrination camp... er, public high school and I can attest to how terribly wrong the history we’re taught is. Like you said, it’s sad because those who don’t know history are doomed to repeat it. Ironically it was the leftists in my school (which was about 3/4 of the population) who would always scream “Those who don’t learn from history are doomed to repeat it!” except they were talking about Rwanda compared to Sudan or Hitler compared to Bush. I’m not a huge fan of Bush, but to compare him to Hitler is ignorant.
“
I was recently in a government indoctrination camp... er, public high school
and I can attest to how terribly wrong the history we’re taught is.
“
In case you haven’t seen it, the speech given by historian David McCullough
about the sad state of history teaching is instructive, even about
the situation in universities. Even Ivy League institutions.
I especially liked (and was aghast at) the portion I re-post below.
I shudder to think that some of the Ivy League students mentioned
will be running the country (into the ground?).
(I hope the real reason for the Dartmouth students being slow to
volunteer what they knew about George Marshall was fear of stepping
forward in the prescence of a historian of McCollough’s reputation.)
Knowing History and Knowing Who We Are
by David McCullough, Historian
http://www.hillsdale.edu/news/imprimis/archive/issue.asp?year=2005&month=04
Our Failure, Our Duty
We are raising a generation of young Americans who are by-and-large
historically illiterate. And it’s not their fault. There have been
innumerable studies, and there’s no denying it. I’ve experienced it
myself again and again. I had a young woman come up to me after a
talk one morning at the University of Missouri to tell me that she
was glad she came to hear me speak, and I said I was pleased she
had shown up. She said, ”Yes, I’m very pleased, because until now
I never understood that all of the 13 colonies —the original
13 colonies—were on the east coast.“
Now you hear that and you think: What in the world have we done?
How could this young lady, this wonderful young American, become a
student at a fine university and not know that?
I taught a seminar at Dartmouth of seniors majoring in history,
honor students, 25 of them. The first morning we sat down and I said,
”How many of you know who George Marshall was?“ Not one. There was
a long silence and finally one young man asked, ”Did he have, maybe,
something to do with the Marshall Plan?“ And I said yes, he certainly did,
and that’s a good place to begin talking about George Marshall.
Closer to 1929 than 1987, but not as bad, unless Paulson over-reacts and sends us into hyper-inflation.
Let me clarify what I mean by “Paulson overreacts”.
They need to hit this crisis with both barrels right now, because they are trying to prevent an out-of-control deflation, which may already be out-of-control. I still suspect that the deflation is out-of-control and there is no stopping it. Everybody is copacetic today and calm is restored, the stock market bounced back 10%, so everybody thinks Paulson & Bernanke have solved the world economic crisis.
The calm before the storm is always like that. For all I know, they have solved the crisis. Personally I don’t believe it. There are still many insolvent banks, money is not moving, credit has collapsed, more write downs to come in the financials and those pesky derivatives, over $60 Trillions of them.
So Paulson and Bernanke are right to hit this crisis with everything they can find. What I mean by “over-react” is, if they do manage to reflate the economy and halt the deflation, they have to immediately stop the pumping and the printing.
In the same way that Greenspan left interest rates too low, too long, and set off this economic collapse after pumping too long, Paulson could set off a hyperinflation if he causes treasury to print too long during the reflation.
http://www.youtube.com/watch?v=jB9fuIvksLw
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